Welcome! I'm Charese, the owner of Financial Fancy, and I’m here to help you stress less this tax season!
I’ve put this guide together for the business owners out there who want to take all the tax deductions they’re qualified for (and don’t want to risk penalties or audits by taking deductions they shouldn’t.) This guide is not intended as tax advice, you should always consult with a tax professional to determine which expenses are deductible for your specific business.
Index
- What is a Write-Off?
- IRS Definitions
- Burden of Proof
- Common Tax Write-Offs
- What Isn’t Deductible?
What is a tax write-off?
A tax write-off is a qualifying ordinary and necessary business expense that you can deduct from your business’s taxable income. COMMON MISCONCEPTION: You don’t need an LLC to write off your business expenses. You can write off qualified business expenses if you are self-employed, are a sole proprietor, or own an LLC, a partnership, or a corporation.
Per IRS Definitions
An ordinary expense per the IRS is one that is common and accepted in your industry. For example, an ordinary expense for a hair salon is shampoo. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
The Burden of Proof
The IRS requires you to prove that your deduction is qualified. For some write-offs, the below documents will be sufficient:
- Receipts
- Cancelled Bills
- Checks
Other types of write-offs (like travel, meals, auto and home office expenses) will require additional documentation like:
- Mileage Logs
- Meeting Minutes/Attendance
- Business Purpose
- Business Use vs. Personal Use
Common Tax Write-Offs
Here are some common tax write-offs for businesses:
- Advertising & Marketing
- Business Travel*
- Banking Fees
- Contractors
- Cost of Goods Sold
- Depreciation & Amortization
- Education*
- Business Licenses
- Office Expenses
- Payroll Expenses
- Qualifying Business Loan Interest
- Qualifying Meals
- Qualifying Taxes Paid
- Vehicle(s)*
*Special qualifications apply to these deductions. Also note, this is not an exhaustive list of business deductions. Determine which write-offs your business is qualified to take by working with a tax accountant.
What isn’t tax deductible?
For your business, generally, personal expenses are not deductible unless there is a portion of business use related to the personal expense (like a vehicle you use for your business and personal use). Then, you can only deduct the business-related portion of the total expense. Other non-deductible expenses include:
- Fines & Penalties
- Political Contributions
- Federal Taxes
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